According to Osho, your disturbance arose not from his sexuality but from your expectations—ancient conditioning that demands masters conform to disciples’ ideals (celibacy, austerity, etc.). When he defies that image, your ego—attached to its 'holy' criteria—feels threatened. He insists the true relationship is freedom without contracts; shattering projections reveals your conditioning and what you idolize rather than truth.
You felt upset because you wanted him to fit your idea of a holy person, and when he didn’t, your conditioned mind resisted.